| 3/17/2008
3:00 PM: EUR/$..1.5726 $/JPY..97.38 GBP/$..2.0017
$/CHF..0.9870 AUD/$..0.9168 $/CAD..1.0000
Fed Emergency Measures Weigh on USD
The dollar sold off heavily overnight in concert
with a plunge in global equities ¨C with the
currency hitting another fresh all-time low against
the euro at 1.5904 and a 12-year low versus the
yen at 95.76. The Federal Reserve announced new
measures to provide liquidity to the financial
markets and cut its discount window by 25-basis
points to 3.25%. Additionally, the Fed extended
the duration of discount window loans from 30-days
to 90-days. The moves follow emergency measures
in conjunction with JP Morgan to provide liquidity
to distressed bank Bear Stearns, which received
an offer of $2 per share over the weekend from
JP Morgan. Heightening fears that the financial
contagion will extend to other banks, particularly
Lehman Brothers, continues to weight on the dollar.
Further, the UK!?s Daily Telegraph expects Goldman
Sachs to announce a $3 billion write-off when
it releases its quarterly earnings report on Tuesday.
The FOMC will announce the results of its monetary
policy meeting tomorrow at 2:15 PM. Although consensus
estimates see the Fed easing rates by 50-basis
points to 2.5%, more aggressive views hint at
the possibility for a 75 to 100 basis point reduction.
The FOMC is expected to continue providing easy
liquidity in an effort to stabilize the ailing
economy. The accompanying statement will be closely
scrutinized for the Fed!?s assessment of the current
state of the financial market as well as additional
pledge to provide liquidity to prop up additional
distressed financial institutions if they materialize.
US economic reports released today saw the current
account deficit in the fourth quarter shrink to
$172.9 billion from $178.4 billion deficit in
the previous quarter. The NY Fed manufacturing
survey deteriorated further in March to minus
22.23, compared with a minus 11.72 reading from
February. Industrial production in February posted
a 0.5% decline versus an increase of 0.1% a month
earlier, while capacity utilization was lower
at 80.9% from 81.5%.
In addition to the FOMC policy announcement on
Tuesday, traders will also look to February building
permits, housing starts, and PPI. Building permits
are forecasted to drop to 1.020 million units
in February versus 1.061 million units a month
earlier, while housing starts are estimated to
fall 990k units down from 1.012 million units
from January. Meanwhile, producer prices are seen
drifting to 0.3% from 1.0% and the core PPI figure
is seen drifting to 0.2% from 0.4%.
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